Written by Josh Ferry Woodard on March 21st, 2012
Foreign Currency Market Update – GBP / USD Update
The Pound rallied to a 10-day high of 1.5914 against the US Dollar on Tuesday. Sterling’s strength came as a result of renewed optimism in the UK economy combined with a slight rise in risk appetite.
GBP USD opened relatively low last week at around 1.5614, the pair fluctuated within a tight range until Friday’s Consumer Price Index figures showed that US inflation increased by 0.4% in February. The largest price hike in 10 months sent the US Dollar spiralling downwards against its major currency peers, with the Pound posting significant gains of 0.96% against the Buck. The exceptional CPI figures were largely down to an increase in oil prices as a result of the rising tensions in Iran.
US Retail Sales improved according to analysts expectations of 1.1% and Fitch joined Moody’s in placing the UK’s esteemed AAA credit rating on negative outlook. But neither of these two events managed to trigger too large a movement in the market last week.
Wednesday’s Consumer Price Index figures showed that UK inflation fell to the lowest level in over a year in January. This kept hopes alive that falling prices could allow constrained consumers to increase their spending this year and in turn boost the economy. However, the headline inflation figure only fell to 3.4% from 3.6%, whereas forecasts had suggested a drop to 3.3% was on the cards. It appears that like with US inflation, the high price of crude oil had its part to play, and like with US inflation, the currency suffered following the release, with the Pound falling against the US Dollar by 0.25% to 1.5847.
The UK’s moderately strong CPI figures should be enough to stem market fears of further quantitative easing, and if tomorrow’s Bank of England Minutes report goes swimmingly then it is highly conceivable that Sterling could hold its ground against the Dollar and perhaps even push past the 1.5900 mark towards 1.6000 in the near future. However, an unexpected twist from George Osborne’s budget report or an unwelcome further bout of QE could send the Pound back down towards the 1.5600′s.
Summary of major upcoming data releases that we think may move the market.
- Foreign Currency Exchange Rate Forecast – The Pound rallied to a high of 1.1450
- Exchange Rate News – The Pound rallied to a high above 1.65 against the U.S Dollar
- The Pound rallied to a fresh high above 1.17 against the Euro exchange rate
- The Pound rallied to a fresh 9-month high above 1.19 against the Euro exchange rate
- Foreign Currency Exchange Rate Forecast – The Pound rallied against the majors